What security interest does JMFS have in a Jersey Mike's restaurant's assets?
Jersey_Mikes Franchise · 2025 FDDAnswer from 2025 FDD Document
If you default, JMFS may declare the entire remaining amount due. If you do not pay JMFS the entire balance, and any accrued unpaid interest, you may be responsible for the court costs and attorneys' fees JMFS incurs in collecting the debt from you. Company may terminate your Franchise Agreement if you do not pay JMFS. The principals of the franchisee entity, and the spouse of each principal, if applicable, will personally guaranty the note. JMFS will also have a security interest in the assets of your Jersey Mike's restaurant, which means that if you do not pay JMFS, JMFS may foreclose upon those assets consistent with state law. You must make note payments to JMFS via auto-debit transfer, if so requested.
You must waive your rights to certain notices of a collection action in JMFS's promissory note and guaranty. If you form or use a legal entity to own the restaurant, your shareholders, members, partners and/or owners must personally guarantee the debt and agree to pay the entire debt and all collection costs. JMFS may sell, assign or discount any promissory note to a third pa rty. If JMFS sel ls or assign your promissory note, it will not affect Company's obligation to provide the services to you that are described in the Franchise Agreement but the third party may be immune under the law to any defenses to payment you may have against JMFS or Company. JMFS and/or Company may partner with a third-party lender to provide financing for the Coach Rod Smith Program. If that happens, you will sign the financing documents required by the third-party lender which may contain materially different terms than JMFS's promissory note and guaranty. JMFS and/or Company may guaranty those obligations in such event.
Source: Item 10 — FINANCING (FDD pages 33–35)
What This Means (2025 FDD)
According to Jersey Mike's 2025 Franchise Disclosure Document, if a franchisee obtains financing through JMFS, JMFS will have a security interest in the assets of the Jersey Mike's restaurant. This means that if the franchisee fails to make payments to JMFS, JMFS has the right to foreclose upon the restaurant's assets, following state law. Additionally, the principals of the franchisee entity, along with their spouses, if applicable, must personally guarantee the note.
This security interest protects JMFS in case of franchisee default, allowing them to recover some of their investment by seizing and liquidating the restaurant's assets. For a franchisee, this represents a significant risk, as failure to meet financial obligations could result in the loss of the business and personal assets if they have been used as collateral. The franchisee must also waive rights to certain notices of collection action.
It is important for prospective Jersey Mike's franchisees to fully understand the terms of the promissory note and guaranty, including the conditions under which JMFS can foreclose on the restaurant's assets. Franchisees should seek legal and financial advice to assess the risks and obligations associated with this financing arrangement. The FDD also mentions that JMFS may sell, assign, or discount the promissory note to a third party, which could impact the franchisee's relationship with the lender and any defenses they may have against payment.